Accounting Information Systems, 8e
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SOLUTIONS FOR CHAPTER 1
Discussion Questions
DQ1-1
“I don’t want to learn about technology; I just want to be a good accountant.”
Comment.
ANS.
Possible points that could be made:
a. Distinguish between an accountant and a bookkeeper. An understanding of
accounting software and related technology would enable one to advance
beyond entry-level positions.
b. Without knowledge of computer technology, an accountant can be a
bookkeeper/accountant for a small firm that does not use computers at all.
(With the ubiquitous nature of computers, this has become a weak argument,
at best.)
c. Because the ability to access data, present data for decision making, audit an
accounting system, and so on, are all affected by computer technology, the
career path for an accountant will be severely limited by his knowledge of
computer technology.
d. The public accounting profession is competitive and the effective use of
technology helps maintain a competitive edge. For example, an auditor can
usually complete an audit engagement in less time—and be surer of the
findings—than he/she would be without using technology in the audit. This
will permit the auditor to charge less for the work and to obtain more clients.
And, if the auditor’s findings can be supported, he/she will be less likely to
experience legal ramifications (from the SEC, from stockholders, and so on).
e. The Sarbanes-Oxley Act of 2002 requires that the CFO (and CEO) sign the
financial statements and attest to their accuracy, that companies notify the
Securities & Exchange Commission of material events within 2 days, and that
companies file their earnings statements within 35 days of the end of a quarter.
All of these requirements have implications for the organization’s accounting
information system and the ability of the CFO to understand and monitor its
operation.
DQ1-2
Examine Figure 1.1 (pg. 8). Based on any work experience you have had, with
which elements are you least comfortable? With which are you most comfortable?
Discuss your answers.
ANS.
See DQ1-3.
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Solutions for Chapter 1
DQ1-3
Examine Figure 1.1 (pg. 8). Based on your college education to date, with which
elements are you comfortable? With which are you least comfortable? Discuss
your answers.
ANS.
The point of both of these questions (DQ1-2 and DQ1-3) is to get the students to
see the breadth of coverage of the AIS course and to see how the course will help
fill in gaps in their background that they may have. Also, the figure and the
discussion should help the student recognize the practical and academic
background that needs to be brought forward into this course.
For example, students with practical experience may have a good background in
business operations, information processing, and management decision making.
Students with computer coursework or practical experience may have background
in databases and technology. If the students have completed intermediate
accounting, accounting principles and reporting may be familiar.
DQ1-4
Why might you have more trouble assessing the success of a not-for-profit
organization or federal government entitlement program than you would have
judging the success of a business organization?
ANS.
The purpose of this question is to get the student’s to understand the relationship
of “success” and “accomplishing specific objectives.”
The issues are similar for any organization. After we move beyond generally
accepted, easily measured objectives, we will have difficulty determining
effectiveness. We must establish objectives and criteria or indicators that can
measure our success in achieving the objectives.
A business organization either explicitly or implicitly establishes objectives such
as market share, profits, and earnings per share. Measuring achievement of these
objectives is fairly straightforward.
The objectives for a federal government entitlement program or not-for-profit
(NFP) organization are often subjective and may not be acknowledged by all
parties. And, measures of success may be elusive. For example, are programs for
the NFP , successful when the number of people assisted is high or when the
number is low, or does it depend on the program? (The Red Cross helps with
disaster relief on a large scale as well as smaller programs such as a local blood
drive. Or, do we measure performance on the basis of program costs per person
assisted? Without an acknowledged set of objectives and measurable success
criteria, we have difficulty knowing we have been effective.
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For non-private (governmental organizations) there is some guidance available to
directly address this issue is the Government Performance and Results Act of
1993 (P.L. 103-62) that was enacted to “provide for the establishment of strategic
planning and performance measurement in the U.S. Federal Government.” To
comply with this act, the managers of all agencies of the federal government must
prepare five-year strategic plans setting forth the goals and objectives that
measure mission achievement and approaches that will be used in achieving those
goals. Annual plans must include performance indicators and a statement of how
measured values will be verified.
A business, or any nongovernmental organization, may take on broader social
responsibilities and establish related objectives. These objectives might include
those for environmental impact, treatment of employees, relations with unions,
and impact on the surrounding community. Measurement of achievement of such
objectives can be problematic.
DQ1-5
Why must you have knowledge of a system’s objectives to study that system?
With this question, we try to establish the connection between a system’s purpose
and its procedures.
ANS.
Understanding and evaluating a system’s procedures must be studied in light of
the system’s objectives. For example, in an accounts receivable process, we
periodically send customer statements and follow up on delinquent receivables
found on those statements. Why? To ensure timely receipt of all outstanding
receivables (i.e., an accounts receivable process objective).
DQ1-6
Do you think your accounting education is preparing you effectively to practice
accounting? Why or why not? Discuss, from both a short-term (i.e., immediately
on graduation) and a long-term (i.e., 5 to 10 years after beginning your career)
standpoint.
ANS.
This question is a follow up to Discussion Questions 1-2 and 1-3. The purpose is
to see that some of the skills and areas of study in Figure 1.1 are short-term in
focus and some are long-term. For example, accounting and auditing principles,
business operations, and events processing are necessary entry-level skills.
Management decision making, communications, and systems development and
operation may be longer-term skills.
DQ1-7
Examine Figure 1.9. Discuss the relative importance of horizontal information
flows and vertical information flows to the accountant.
ANS.
An information system captures and records data as business operations take
place. This business event processing or horizontal information flow is the very
basis of the AIS. From this horizontal flow, the accountant must capture the data
necessary for accounting records and to produce accounting reports.
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Solutions for Chapter 1
Vertical information flows, derived from the horizontal flows, provide managers
with information with which to plan, manage, and control operations. The
accountant participates in the processes (summarize, calculate, filter, consolidate,
etc.) necessary to produce the vertical flows.
DQ1-8
Give several examples not mentioned in the chapter of potential conflicts between
pairs of information qualities.
ANS.
Note: Pairs discussed in the text include completeness and timeliness, and
accuracy and timeliness. This question is open ended and presents almost
unlimited opportunities to analyze the “qualities” of information and to explain
them in context rather than merely regurgitating definitions.
Tradeoff
Example
Timeliness versus accuracy and
completeness
Timeliness (e. g., accelerating the frequency with which reports are prepared)
compromises several other qualities. For example, shortening the delay
between the actual shipment and reporting the data related to the shipment
produces risks that the reported sales will be inaccurate and/or incomplete.
Validity versus timeliness
The time spent to edit information to ensure its validity may sacrifice the
timeliness of the information. For example, we may review all inventory
receipts to ensure that all reported receipts represent goods actually received.
When the edits are completed, the information may no longer be needed.
Relevance versus accuracy
Unless data is accurate, it may not be relevant for certain decisions. For
example, sales recorded in the sales journal must be accurate as to quantity
and price. On the other hand, sales reported for sales analysis need not be so
accurate.
DQ1-9
Regarding financial reporting, which quality of information do you think should
be superior to all other qualities? Discuss your answer.
ANS.
In Statement of Financial Accounting Concepts No. 2: Qualitative Characteristics
of Accounting Information, the Financial Accounting Standards Board (FASB)
elevated understandability to the status of being the overall goal of financial
reporting. According to Concepts Statement No.2, financial reporting procedures
are to be chosen on the basis of their capability to make financial information
understandable to the decision maker.
Certainly, the superiority of other qualities might be discussed. For example, in
Figure 1.6 in this text, we elevated decision usefulness to a position superior to
understandability. We did so because we wanted to present a hierarchy germane to
all decisions and decision makers and were not as concerned, as was the FASB,
that financial information must be understood by a variety of users.
DQ1-10
What information quality is most important—relevance or reliability? Discuss
your answer.
Accounting Information Systems, 8e
ANS.
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Note: To answer this question, first review the definitions given in the chapter to
make sure to use the terms as they are defined here and not as they might be used
in general practice. Relevance is defined as “information capable of making a
difference in a decision-making situation by reducing uncertainty or increasing
knowledge for that particular decision.” Reliability is defined (in Exhibit 1.2) as
“relates to the provision of appropriate information for management to operate the
entity and for management to exercise its financial and compliance reporting
responsibilities.”
First, we can say that relevance addresses a decision to be made and reducing
uncertainty (or increasing knowledge). The uncertainty being reduced must be
relative to the knowledge already possessed by a particular decision maker for a
particular decision. Reliability does not refer to specific decisions (or decision
makers). So, for a specific decision and decision maker, relevance is most
important.
Second, we can say that reliability refers to some externally imposed constraints
(e.g. regulatory bodies, laws). For example, organizations with stock publicly
traded in the United States must adhere to the rules for financial reporting
prescribed by the Securities and Exchange Commission and the Financial
Accounting Standards Board. Generally Accepted Accounting Principles (GAAP)
would, for example, require that historical cost be used to report the dollar value
of assets held by an entity. Historical cost information may not be “relevant” for
some decisions, but it is “reliable”.
DQ1-11
Describe a two structured decisions and a two unstructured decisions. Discuss the
relative amount of structure in each decision.
ANS.
Structured decisions: a. Approving credit. b. When and how much inventory to
reorder (an example from the chapter). c. Capital budgeting. Decision type a
probably occurs more often than b, and b more often than c, making decision type
a more repetitive and probably more structured than b (and b more than c). In
addition, the criteria and data used for decision type a are probably more certain
than they are for b (and b more certain than c).
Unstructured decisions: a. Acquire or merge with another company. b. Select a
new product or line of business. c. Select a marketing campaign. As with our list
for structured decisions, these type decisions occur with differing frequency in a
typical business. For example, a typical business selects a marketing campaign
more frequently than it selects a new product or line of business or merges with
another company. And, the criteria and data used to decide if and how to acquire
another company is probably the most uncertain, which makes that type of
decision the most unstructured.
DQ1-12
“To be of any value, a modern information process must assist all levels of
management.” Discuss.
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Solutions for Chapter 1
ANS.
This question addresses the value of an information process. An information
process can be of value at each and every level in the organization by providing
information useful in making decisions (see Figure 1.6). As the information
process provides information possessing qualities useful at higher levels in the
organization, it acquires a greater value. However, an information process
possesses value by simply monitoring business operations through collecting and
recording business events.
Problems
P1-1 ANS.
P1-2 ANS.
Regarding the quote by Robert K. Elliott, the following points could be made:

As discussed in this chapter, identifying relevant information requires
understanding the decision maker and the decision being made.

Modeling systems and designing systems to obtain needed information is
consistent with the role of designer of information systems discussed in this
chapter.

Advising on controls and security and ensuring information reliability are
consistent with the role of the accountant as an evaluator of information
systems as discussed in this chapter.

This chapter makes the point that the accountant must understand a broad
context of organizational issues. The portion of this quote that talks about
deploying knowledge includes a number of those contexts, such as strategic
planning, marketing, and daily operations.

The chapter does not disagree with the quote.

We do think that accountants must provide these services or be marginalized
by those who will. And, as discussed in this chapter, the accountant is
uniquely positioned and qualified to provide these services. Students may
have a variety of opinions here.

We might also mention that a potential conflict of interest could arise if any
accountant (or firm) performs any design or consulting work and also
performs attestation for the same client. In fact, SOX Section 201 prohibits a
CPA firm that audits a public company to engage in certain nonaudit services
with the same client.
First, to be qualified to perform such services, the accountant must be familiar
with the nonfinancial information being reviewed. To perform an audit of
financial statements, for example, the accountant must be familiar with financial
accounting theory and practice. To be qualified to perform assurance services, an
accountant must be familiar with the subject matter of the engagement. Subject
areas may include risk assessment, strategic planning, quality control, process
improvement, and customer and product productivity.
Accounting Information Systems, 8e
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Second, to perform an audit, an accountant must be familiar with auditing
standards, principles, and practices. Assurances services, on the other hand, may
be governed by different standards and will require different skills than those
required for an audit. Certainly, the assurance services practitioner will depend
more on communication and teamwork skills than ever before. Also, additional
evidence gathering, analysis, and information technology skills will be required.
Examples of such skills include statistical analysis, market research, and facility
with database management systems
Finally, performing these services can provide an interesting variety of work
engagements for the accountant as well as additional sources of revenue.
P1-3 ANS.
For Sarbanes-Oxley-related work within the accountant’s own organization,
answers should address documenting systems, performing risk assessment,
evaluating internal controls, and so on. For work outside the accountant’s
organization (e.g., for clients), answers should address the assistance given to
prepare clients for the Section 404 review. Accountants can do such work for their
audit clients without violating the requirement that they not undertake consulting
for their audit clients, if they limit the work to documentation and risk assessment.
An accountant can help only a nonaudit client design a system of internal controls
to correct control weaknesses. Finally, the auditor will be reviewing the
management assertion required under Section 404 during the annual audit. For
this work, they will be reading documentation, performing risk assessment, and
entering an opinion on the functioning of the system of control.
P1-4 ANS.
Note: This solution assumes that the daily and monthly reports are prepared by
the central information services function, are provided by software developed and
tested by systems development personnel, and are provided to a number of users.
It is useful to know which, if any, of the outputs contains historical information
and to know the purpose (e.g. decision) for each output. Before going over this
problem, an instructor may want to test these assumptions with the class.
Quality
Inquiry
Daily
Understandability
User can control format.
User may not be able to control User may not be able to
format.
control format.
Relevance
Information may be tailored Information may be intended
for the user.
for a number of users.
Information may be intended
for a number of users.
Timeliness
Most timely.
May not be timely for some
decisions.
Predictive
value/feedback value
User may be able to modify May not provide for “what if”
each report to perform “what analysis and may not
if” analysis and to
incorporate the decision
incorporate his/her own
maker’s personal prior
earlier expectations.
expectations.
Second most timely.
Monthly
May not provide for “what if”
analysis and may not
incorporate the decision
maker’s personal prior
expectations.
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Solutions for Chapter 1
Quality
Inquiry
Daily
Monthly
Neutrality/freedom from A single user’s assessment may
Central control and preparation Central control and
for multiple users may lead to preparation for multiple users
bias
not lead to neutral information.
may lead to increased
increased neutrality.
neutrality.
Comparability
Because one user has
Information centrally
prepared this information for controlled and provided to a
himself/herself and with
number of users may be
little, if any, central control, comparable to other
the information may not be information.
comparable to other
information.
Consistency
Because the manager can
formulate each query
differently, consistency is
suspect.
Centrally controlled reports
Centrally controlled reports
that have been tested, and
that have been tested, and
change little over time, should change little over time, should
provide consistent information. provide consistent
information.
Validity
Information may not have
been checked for validity.
Controls may increase validity Controls may increase validity
of this information.
of this information.
Accuracy
Information may not have Controls may increase
been checked for accuracy. accuracy of this information.
Controls may increase
accuracy of this information.
Completeness
Least complete.
Most complete.
Average completeness.
Information centrally
controlled and provided to a
number of users may be
comparable to other
information.
P1-5 ANS.
Every student answer will likely be different. Many job listing sources are
available. Students may use general sites such as http://www.monster.com or
specific sites for accountants such as http://www.accounting.com. Governmental
sites and sites for specific companies are also available. Many listings will have
specific job requirements. The student should list the job requirements, his/her
current abilities, and the steps to bridge any gaps. The steps may include college
courses, technical courses, certifications, or any other applicable learning
experience.
P1-6 ANS.
A wide range of answers are likely, based on the firm interviewed. Most
professional organizations have information on what is expected in general (see
IFAC#11 or http://www.aicpa.org). Individual firms may have slightly different
expectations. Small firms may have lower (or higher) expectations based on their
client base and services offered. Larger firms may have different expectations
based on their training programs (possibly lower expectations if they intend to
train employees on firm methods and procedures). The expectations may differ
significantly based on the level of job discussed.
P1-7 ANS.
1. A
2. C, D
Accounting Information Systems, 8e
3. A
4. E
5. B
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